Organizations Involved1:
Fair trade standards for coffee were established in 1988 by the Fairtrade Labeling Organization International (FLO), a non-profit association that acts as an umbrella covering several organizations including labelers, producers, and traders. These standards are still upheld internationally by FLO.
Transfair USA is the member organization of the FLO that certifies products in the United States.
“The purpose of fair trade standards is to create opportunity for economic and social development among small farmers and farm laborers who are disadvantaged in the traditional market and to require sustainable farming practices that protect the environment.”
How It Works2:
Fair trade coffee is coffee which is purchased directly from the growers for a higher price than standard coffee and sold in a market of its own caliber. The purpose of fair trade is to promote healthier working conditions and greater economic incentive for producers who are otherwise marginalized in the global market. Growers are guaranteed a minimum price for the coffee, and if market prices rise above the minimum, growers receive a per pound premium.
Coffee farmers producing Fair Trade Certified (FTC) coffee are required to be part of a co-op with other local growers. The co-ops determine how the earnings will be spent, a percentage of which is required to be spent towards the social development of the community.
Standards for Fair Trade Coffee Certification2 Co-Ops must:
provide safe working conditions, transparency in business planning and use of funds, and a living wage for workers,
prohibit child labor and discriminatory practices,
invest in the development of the community, for example, by funding health care, education, or training to improve coffee quality or obtain organic certification, and
preserve natural ecosystems and promote sustainable farming methods that limit use of agrochemicals and prohibit genetically modified organisms
must exclude middlemen
A criticism is that the per-pound price for Fair Trade coffee is that of the 1990 International Coffee Organization price2, which is only slightly above the cost of production. FTC co-ops only make $0.20-$0.30 per pound of coffee they grow and sell. As a result, growers do not make much profit off of Fair Trade like the commercial sellers do.
The largest assumption made by FTC consumers is that farmers are guaranteed a much higher price, thus receive living wages. However, the farmer does not directly receive the $1.26 paid per pound, but instead receives whatever portion the co-op decides. Depending on the size of the co-op, this trickles down into very small amounts per farmer. Co-ops can also become corrupted just as any other organization can, further hindering the purpose of Fair Trade.
Recently published in the Cato Journal, Jeremy Weber wrote Fair Trade Coffee Enthusiasts Should Confront Reality, about the common misconceptions and flaws in the Fair Trade coffee industry. He begins by discussing the disconnect between what is advertised (to boost sales) and how much producers actually benefit. Many retailers claim that Fair Trade coffee guarantees a living wage to coffee growers; when in reality, it ensures a minimum price to organizations of producers (cooperatives), not individual producers.3
Since Fair Trade eliminates “unnecessary” middlemen, producer organizations are left to perform the tasks previously conducted by those middlemen, like obtaining financing to buy coffee from its members, sorting and processing the coffee, and coordinating exportation. Each activity creates more expenses which, if not managed properly, can use up much of the higher Fair Trade price before it reaches the growers. This, then, causes the growers to exploit their own people since they cannot outsource labor, like we do. Standards for the farmers that care for the land (employees of the land owners/co-op members) do not exist, allowing unlivable wages as displayed in northern Peru where a study found that 4 out of 5 farms paid workers below the legal minimum wage.3
The added responsibilities causes heightened costs for the co-ops and these heightened costs make it almost as economically feasible to sell locally, rather than internationally, thus defeating the purpose of the program. However, this is a fact that is solemnly shared with FTC coffee consumers.
Another concept Weber discusses is the basic economic effect of a price floor when the market price is below it: excess supply. The current price floor in the market for Fair Trade coffee is $1.25/lb. However, coffee prices have consistently been below the minimum price between 2000 and 2005, the lowest price being under .60/lb. Although the price did peak above the minimum in 2005, it quickly fell again by 2006. This large discrepancy between set price and actual market price has caused an excess supply large enough to force Fair Trade to close its doors to some growers.3
The excess supply is a major problem for producer organizations because Fair Trade contracts are limited, the logic being that there is already so much excess supply that there is no need for more producers. This further excludes marginalized coffee growers that Fair Trade is supposed to be helping. “Bob Thomson, the former director of Fair TradeMark Canada, affirmed in 1995 that Fair Trade producers had a productive capacity of 250,000 MT of coffee for a demand of only 11,000 MT (Thomson 1995). In other words, the market only purchased around 13 percent of the production of certified coffee producers’ organizations. The imbalance was significant enough to cause FLO to temporarily close their registry to new members in 2002 (Vizcarra 2002).”3
There is an alternative option for growers: producing Fair Trade Organic coffee. “Between 1996 and 2000, exports of dual certified coffee (Fair Trade and organic) grew from 86.25 MT to 5,096 MT, an increase of about 5,800 percent (Raynolds 2002). According to Fair Trade fast facts, approximately 85 percent of Fair Trade coffee sold in the United States is certified organic (TransFair USA 2006).”3 The only issue with getting dual certification is that it is more time consuming (land must be monitored and tested) and extremely costly (fees and monitoring), well beyond the reach of most growers that qualify for Fair Trade.
In summary, although Fair Trade may benefit some growers, for most it means unfair wages that they cannot live off of. Logically, farmers would produce more to get better wages, but the demand is not there (unless organic certification is achieved).
Trapped in this cycle of poor wages, the money that is meant to go the community is sparse. Without this money, the community cannot prosper (no schools, hospitals, etc). This, then, causes a dependency on foreign aid (in the form of food and healthcare).
Also, not all coffee growers have gotten certification, simply because they do not have the means to obtain it (co-op does not qualify, lack of financial investment, etc). This does not mean that they are any better off than those who have received certification (in fact, they are worse off). Therefore, the Fair Trade labels are now (unintentionally) marginalizing regular farmers because consumers are increasingly demanding Fair Trade coffee over the coffee of other coffee growers.
As far as solutions to matrix of problems go, there are several ways to go about it. For one, Weber suggests that FLO actually encourage farmers to create partnerships with companies to help with optimizing production, minimizing costs, etc. instead of forbidding it. After all, these farmers cannot be expected to know the ins and outs of business/farm management and/or have the connections necessary to be successful. “FLO should welcome partnerships between producer organizations and private companies instead of insisting that producer organizations assume all export responsibilities. Social justice goals and efficiency can complement each other.”3
Another solution would be to fix the way we handle foreign aid. The film Black Gold speaks to this issue by demonstrating how the foreign aid provided to coffee growing nations cannot be used toward subsidizing their farmers, thus keeping them stuck in a cycle of receiving low wages and foreign aid. The film declares the following shocking set of statistics: “Africa currently composes 1% of world trade. If this percentage were increased by another 1%, their national income would increase by approximately $70 billion, which is worth 5 times the aid they receive.”4 Since they are not allowed to subsidize their farmers with their aid money they cannot break free from the aforementioned cycle.
I believe the Fair Trade rules should be judged on their actual contribution to poverty reduction, respect for human rights, and environmental sustainability. As far as measuring these contributions, that would take the re-evaluation of our economic system to include them in our measurements of economic growth.
To see what you can do, visit the Oxfam International website and read up on the campaign.
For Fun: [http://www.blackgoldmovie.com/CoffeeCalculator/]
This website (provided by BlackGold) tells you approximately what percentage of the price you pay for your coffee goes to who (growers, producers, distributors, etc).
CITATIONS:
1. WeBuyItGreen. "Fair Trade Coffee - Green Wiki." Green WIkia. Web. 25 Mar. 2010. <http://green.wikia.com/wiki/Fair_Trade_Coffee>.
2. "Fair trade coffee." Wikipedia. Web. 25 Mar. 2010. <http://en.wikipedia.org/wiki/Fair_trade_coffee#Criticism>.
3. Weber, Jeremy. "Fair Trade Coffee Enthusiasts Should Confront Reality." Cato Journal 27.1 (2007): 109-117. PDF file.
4. Black Gold. Dir. Marc & Nick Francis. California Newsreel, 2006. Film.
Just how fair is Fair Trade?
by Amanda Dominguez
Organizations Involved1:
Fair trade standards for coffee were established in 1988 by the Fairtrade Labeling Organization International (FLO), a non-profit association that acts as an umbrella covering several organizations including labelers, producers, and traders. These standards are still upheld internationally by FLO.
Transfair USA is the member organization of the FLO that certifies products in the United States.
“The purpose of fair trade standards is to create opportunity for economic and social development among small farmers and farm laborers who are disadvantaged in the traditional market and to require sustainable farming practices that protect the environment.”
How It Works2:
Fair trade coffee is coffee which is purchased directly from the growers for a higher price than standard coffee and sold in a market of its own caliber. The purpose of fair trade is to promote healthier working conditions and greater economic incentive for producers who are otherwise marginalized in the global market. Growers are guaranteed a minimum price for the coffee, and if market prices rise above the minimum, growers receive a per pound premium.
Coffee farmers producing Fair Trade Certified (FTC) coffee are required to be part of a co-op with other local growers. The co-ops determine how the earnings will be spent, a percentage of which is required to be spent towards the social development of the community.
Standards for Fair Trade Coffee Certification2
Co-Ops must:
A criticism is that the per-pound price for Fair Trade coffee is that of the 1990 International Coffee Organization price2, which is only slightly above the cost of production. FTC co-ops only make $0.20-$0.30 per pound of coffee they grow and sell. As a result, growers do not make much profit off of Fair Trade like the commercial sellers do.
The largest assumption made by FTC consumers is that farmers are guaranteed a much higher price, thus receive living wages. However, the farmer does not directly receive the $1.26 paid per pound, but instead receives whatever portion the co-op decides. Depending on the size of the co-op, this trickles down into very small amounts per farmer. Co-ops can also become corrupted just as any other organization can, further hindering the purpose of Fair Trade.
Recently published in the Cato Journal, Jeremy Weber wrote Fair Trade Coffee Enthusiasts Should Confront Reality, about the common misconceptions and flaws in the Fair Trade coffee industry. He begins by discussing the disconnect between what is advertised (to boost sales) and how much producers actually benefit. Many retailers claim that Fair Trade coffee guarantees a living wage to coffee growers; when in reality, it ensures a minimum price to organizations of producers (cooperatives), not individual producers.3
Since Fair Trade eliminates “unnecessary” middlemen, producer organizations are left to perform the tasks previously conducted by those middlemen, like obtaining financing to buy coffee from its members, sorting and processing the coffee, and coordinating exportation. Each activity creates more expenses which, if not managed properly, can use up much of the higher Fair Trade price before it reaches the growers. This, then, causes the growers to exploit their own people since they cannot outsource labor, like we do. Standards for the farmers that care for the land (employees of the land owners/co-op members) do not exist, allowing unlivable wages as displayed in northern Peru where a study found that 4 out of 5 farms paid workers below the legal minimum wage.3
The added responsibilities causes heightened costs for the co-ops and these heightened costs make it almost as economically feasible to sell locally, rather than internationally, thus defeating the purpose of the program. However, this is a fact that is solemnly shared with FTC coffee consumers.
Another concept Weber discusses is the basic economic effect of a price floor when the market price is below it: excess supply. The current price floor in the market for Fair Trade coffee is $1.25/lb. However, coffee prices have consistently been below the minimum price between 2000 and 2005, the lowest price being under .60/lb. Although the price did peak above the minimum in 2005, it quickly fell again by 2006. This large discrepancy between set price and actual market price has caused an excess supply large enough to force Fair Trade to close its doors to some growers.3
The excess supply is a major problem for producer organizations because Fair Trade contracts are limited, the logic being that there is already so much excess supply that there is no need for more producers. This further excludes marginalized coffee growers that Fair Trade is supposed to be helping. “Bob Thomson, the former director of Fair TradeMark Canada, affirmed in 1995 that Fair Trade producers had a productive capacity of 250,000 MT of coffee for a demand of only 11,000 MT (Thomson 1995). In other words, the market only purchased around 13 percent of the production of certified coffee producers’ organizations. The imbalance was significant enough to cause FLO to temporarily close their registry to new members in 2002 (Vizcarra 2002).”3
There is an alternative option for growers: producing Fair Trade Organic coffee. “Between 1996 and 2000, exports of dual certified coffee (Fair Trade and organic) grew from 86.25 MT to 5,096 MT, an increase of about 5,800 percent (Raynolds 2002). According to Fair Trade fast facts, approximately 85 percent of Fair Trade coffee sold in the United States is certified organic (TransFair USA 2006).”3 The only issue with getting dual certification is that it is more time consuming (land must be monitored and tested) and extremely costly (fees and monitoring), well beyond the reach of most growers that qualify for Fair Trade.
In summary, although Fair Trade may benefit some growers, for most it means unfair wages that they cannot live off of. Logically, farmers would produce more to get better wages, but the demand is not there (unless organic certification is achieved).
Trapped in this cycle of poor wages, the money that is meant to go the community is sparse. Without this money, the community cannot prosper (no schools, hospitals, etc). This, then, causes a dependency on foreign aid (in the form of food and healthcare).
Also, not all coffee growers have gotten certification, simply because they do not have the means to obtain it (co-op does not qualify, lack of financial investment, etc). This does not mean that they are any better off than those who have received certification (in fact, they are worse off). Therefore, the Fair Trade labels are now (unintentionally) marginalizing regular farmers because consumers are increasingly demanding Fair Trade coffee over the coffee of other coffee growers.
As far as solutions to matrix of problems go, there are several ways to go about it. For one, Weber suggests that FLO actually encourage farmers to create partnerships with companies to help with optimizing production, minimizing costs, etc. instead of forbidding it. After all, these farmers cannot be expected to know the ins and outs of business/farm management and/or have the connections necessary to be successful. “FLO should welcome partnerships between producer organizations and private companies instead of insisting that producer organizations assume all export responsibilities. Social justice goals and efficiency can complement each other.”3
Another solution would be to fix the way we handle foreign aid. The film Black Gold speaks to this issue by demonstrating how the foreign aid provided to coffee growing nations cannot be used toward subsidizing their farmers, thus keeping them stuck in a cycle of receiving low wages and foreign aid. The film declares the following shocking set of statistics: “Africa currently composes 1% of world trade. If this percentage were increased by another 1%, their national income would increase by approximately $70 billion, which is worth 5 times the aid they receive.”4 Since they are not allowed to subsidize their farmers with their aid money they cannot break free from the aforementioned cycle.
I believe the Fair Trade rules should be judged on their actual contribution to poverty reduction, respect for human rights, and environmental sustainability. As far as measuring these contributions, that would take the re-evaluation of our economic system to include them in our measurements of economic growth.
To see what you can do, visit the Oxfam International website and read up on the campaign.
For Fun: [http://www.blackgoldmovie.com/CoffeeCalculator/]
This website (provided by Black Gold) tells you approximately what percentage of the price you pay for your coffee goes to who (growers, producers, distributors, etc).
CITATIONS:
1. WeBuyItGreen. "Fair Trade Coffee - Green Wiki." Green WIkia. Web. 25 Mar. 2010. <http://green.wikia.com/wiki/Fair_Trade_Coffee>.
2. "Fair trade coffee." Wikipedia. Web. 25 Mar. 2010. <http://en.wikipedia.org/wiki/Fair_trade_coffee#Criticism>.
3. Weber, Jeremy. "Fair Trade Coffee Enthusiasts Should Confront Reality." Cato Journal 27.1 (2007): 109-117. PDF file.
4. Black Gold. Dir. Marc & Nick Francis. California Newsreel, 2006. Film.
Sources for Images: (from left to right)
1. "Black Gold: - A Film About Coffee and Trade." Black Gold. Web. 25 Mar. 2010. <http://www.blackgoldmovie.com/>.
2. "Fair Trade." Gopher Spot - Going Green. University of Minnesota. Web. 25 Mar. 2010. <http://www.spsc.umn.edu/gopherspot/green/fairtrade.php>.
3. Jeremy. "The unfairtrade campaign." Make Wealth History. 20 June 2008. Web. 25 Mar. 2010. <http://makewealthhistory.org/2008/06/20/the-unfairtrade-campaign/>.
[posted April 13, 2010]